CSDDD or The straw that broke the camel's back

The waves of indignation have been running high since the Federal Minister of Finance Christian Lindner and the Federal Minister of Justice Marco Buschmann declared last week that they do not support the result negotiated in Brussels on the European Supply Chain Act. Germany is expected to abstain in the Council vote scheduled for the end of this week. It remains to be seen whether the Corporate Sustainability Due Diligence Directive (CSDDD) will make it over the finishing line, as other member states now seem to be having second thoughts. What lies behind the concerns?

Showing the legislative project the red card so shortly before a law is passed is not nice. In fact, it would be desirable for Germany to take a clear position much earlier and make its concerns heard in Brussels. How often do we hear in Brussels that it is unclear what Germany wants, as happened in the voting process on the CSDDD.

Criticism of the CSDDD

The ministers have now pulled the emergency brake and explained in an open letter why they do not support this result. None of the reasons given are surprising or new: the scope of application of the CSDDD is much broader than the German Supply Chain Due Diligence Act, the comprehensive definition of the value chain is difficult, civil liability is a problem, and the considerable additional financial, personnel and bureaucratic burdens are also mentioned, among other things.

Many of these points have been discussed repeatedly during the legislative process and there has been some movement in the direction of "leaner and more practical" when it comes to liability and the value chain. There were even more far-reaching proposals on the table for the scope of application, which were prevented. The harmonization clause of the CSDDD, which ensures a certain level playing field at EU level and prevents companies operating across Europe from having to comply with all national supply chain laws, is a plus. Nevertheless, the scope of the law's requirements is undoubtedly still a major challenge for the companies concerned.

Scope of application for large (?) companies

Many of the really large companies have been already addressing the issue of human rights in the supply chain for a number of years. After the CSDDD has been more strongly adapted to the OECD guidelines, the directive has become generally acceptable for them, even if the devil is certainly still in the detail. However, the law already applies to companies with more than 500 employees and in high-risk sectors to those that have just more than 250 employees. These (small) large companies in particular will have to struggle with the implementation of new regulations – and not just because of the CSDDD.

The triad: EU taxonomy, CSRD and now CSDDD

In addition to the European Supply Chain Act, non-capital-market-oriented companies with 250 employees have to apply two other heavyweights of sustainability legislation since 2023: the EU taxonomy and the Corporate Sustainable Reporting Directive (CSRD), including the European sustainability standards. Both pieces of legislation are highly complex, very granular and require a great deal of effort to implement. In addition, both legislative projects are characterized by the fact that there are still many problems of understanding. This is shown, for example, by the approximately 260 questions that EFRAG has already received on the European sustainability standards.

In the future, the (small) large companies will also have to deal with this legal situation, which the very large companies are already struggling with. These are mostly companies that are very lean and generally do not have their own legal department, let alone a sustainability department. They are currently faced with the almost impossible task of understanding, implementing and complying with all current sustainability requirements. It will not be possible without a great deal of internal and external resources: more staff – which is difficult given the high demand for sustainability specialists, more consulting, more costs – and all this at a time when the economic outlook in Germany cannot really be described as rosy.

Sustainability legislation in the EU – too much, too fast?

Over the past five years, the EU has passed sustainability laws as if there were no tomorrow. All of these laws undoubtedly address important concerns that a broad majority of companies support and welcome. This also applies to the Corporate Sustainability Due Diligence Directive. However, it comes at the end of an election period in which there was never time to pause to look at the big picture and wait and see which law has what effect and how the interplay of all the regulations actually works. This incessant succession of new sustainability requirements now seems to be culminating in resentment towards the CSDDD. This is regrettable, but it is the straw that broke the camel's back.